Short Sale Mortgage Fraud Schemes Increasing
Bloomberg's Businessweek.com reports that the FBI and other agencies have warned that short-sale schemes, including one known as "flopping," may spread following a plunge in home values that has left homeowners owing more than their properties are worth. The scams threaten to deepen losses for lenders increasingly using short sales as an alternative to foreclosure. According to the article, “flopping” involves hiring a mortgage broker to generate an artificially low property value. This false value is then used to convince banks to accept a short sale for that amount to a straw buyer. The buyer conceals from the lender that she has lined up a higher offer, and then quickly resells the property for a profit. Two Connecticut real estate agents are scheduled to be sentenced in U.S. District Court after pleading guilty to this type of fraud scheme, according to the Businessweek article.
A study by real estate data and research company CoreLogic Inc. found that “flopping” occurs in more than 1 percent of short sales and may cost lenders $50 million in 2010, reported Businessweek. Neil Barofsky, special inspector general for the Troubled Asset Relief Program, wrote in an April 20 report to Congress that recent efforts to increase short sales may also increase incentives for fraud.
